The UK defence secretary has criticised a "tasteless, provocative" advert showing an Argentine athlete training on a UK war memorial in the Falklands.
The political advert shows hockey captain Fernando Zylberberg training in the Falklands ahead of London 2012.
It ends with: "To compete on English soil we train on Argentine soil."
Philip Hammond told Sky News it was "very insulting" to the many UK servicemen and women "who gave their lives protecting the Falkland Islands".
"I also think it's a breach of one of the fundamental principles of the Olympics: That politics is set aside, that nobody should exploit the Olympic logo, the Olympic message, for political purposes," he added.
"I hope the International Olympic Committee will be looking at that."
The advert - broadcast in Argentina on Wednesday night - is the latest measure by Argentina to reassert its claim to the British overseas territory it calls the Malvinas.
It is titled Olympic Games 2012: Homage to the Fallen and the Veterans of the Malvinas.
Argentine hockey captain Fernando Zylberberg is shown running and exercising in the Falklands' capital Port Stanley, interspersed with shots of penguins and the windswept South Atlantic.
The video was produced by one of Argentina's main advertising agencies, Young & Rubicon, owned by British advertising giants WPP.
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It hired for the job a company with previous experience in undercover filming, Fly Films.
The crew went to the islands in March ostensibly to film a marathon that included many international runners, including Mr Zylberberg and other Argentine athletes.
They stayed for a week and filmed secretly around the Falkland Islands.
Argentina's leading newspapers, La Nacion and Clarin, say the piece wasn't commissioned by the government.
It was first offered to private companies, who preferred to stay away from the controversial video.
It was then brought to the attention of President Cristina Fernandez de Kirchner, who bought it and broadcast it on Wednesday night.
Mr Zylberberg told a radio station that he was unaware of the government's involvement.
"I only found out the day before the broadcast that it would be used as a political advert by the president's office," he said.
Speaking on Friday morning, UK Foreign Secretary William Hague branded the video a stunt to try to make up for recent diplomatic setbacks.
"They have failed at the summit of the Americas to get other countries... to issue a declaration on the Falkland Islands," he said.
"I don't think trying to misuse the Olympics in some way for political purposes will go down very well with other countries."
Falklands legislator Ian Hansen, meanwhile, dismissed the video as a piece of "cheap and disrespectful propaganda".
He also accused Argentina of trying to "politicize the Olympics in service of its territorial ambitions".
"It is deeply sad to see Mr Zylberberg clambering over a war memorial. Sadly this illustrates the disrespect the Argentine authorities have for our home and our people," Mr Hansen said.
"At no stage does the video feature any Falkland Islanders - a clear reflection of Argentina's policy, which is to pretend that the people of the Falkland Islands do not exist."
Last month saw the 30th anniversary of the start of the Falklands War, when Argentine forces invaded the islands before being defeated by a British task force.
Argentina wants the UK to negotiate on sovereignty, but the British government says it will not discuss the issue without the agreement of the Falkland islanders.
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